According to the Israel Export Institute's estimates, despite the difficulties of the past year and the scary predictions, Israel's exports fell only moderately in 2020, by 3% in US dollar terms, totaling $107 billion, which compares with $111 billion in 2019. On the appreciation of the shekel, the Export Institute says that exporters have learned the lessons of the past, and are able to protect themselves against exchange rate fluctuations, such that the effect on their revenue of the rise in the value of the shekel against the US dollar was negligible.
Exports of goods fell 4% last year to $54 billion, but exports of business services rose 9%, to $47 billion. The rise was mainly in the high technology sector - cybersecurity, fintech, enterprise management systems and so forth. Israel's technology sector has become an even more important growth engine than it already was, and its share of services exports is growing. Exports of technology services rose by 11% in 2020 in comparison with 2019, to $37 billion, which is double the figure for 2014.
According to a study by the chief economist at the Export Institute Shauli Katzenelson and its head of economic research Daniel Rofe, high technology accounts for more than half of Israel's total exports, both of goods and services.
The US is Israel's main export market (40%). Exports of goods to the US were hit by the coronavirus pandemic, and fell by 3% in 2020, but exports of services to the US grew by a similar percentage.
Katzenelson and Rofe explain that high technology was hardly hurt by the pandemic, and perhaps even the opposite; the global rise in online trading and other activity because of lockdowns and other restrictions on physical meetings led to a rise in demand for digital services of all kinds. The dramatic global rise in digital crime led to a corresponding rise in demand for cybersecurity services, and Israel is a world leader in this area.
Export Institute chairperson Adiv Baruch describes 2020 as a year of hysteria and history: hysteria because of the coronavirus pandemic, which caught the world unprepared, and history because of the normalization agreements between Israel and Arab countries, which hold huge potential for the Israeli economy.
The agreements with the UAE and Bahrain, Baruch says, represented an important trend in maintaining Israel's economic strength. "It's not just the bilateral trade with the Emirates, but trade via them with both new and old markets. We need to adapt ourselves to the free trade areas in the Gulf states, and to Bahrain's status as a global financial center and a gateway to Saudi Arabia. Within a radius of three hours flying time you can reach three billion people in the Gulf states. We must exploit the opportunities. Not just in the Emirates and Bahrain, but via them in Indonesia and Malaysia and Saudi Arabia and other new markets," says Baruch.
Baruch warns that many Israelis arriving in the Gulf states fail to allow for the confidence building stage, but nevertheless, despite frictions and foul-ups, the economic tie is strengthening. "We have seen agreements signed in the Gulf totaling more than $1 billion, and some are already at advanced stages of implementation."
An indication of that can be found in the figure of a 20% rise in exports to "unclassified countries" in 2020, that is, to countries with which Israel does not have diplomatic relations, and the Gulf states were still in that category last year. There are, however, other countries in this category, that mainly receive security exports from Israel or digital services.
Baruch says that Israel's goal should be to encourage developing companies to keep their research and development activity in Israel. "There are excellent examples, such as Wix, Mobileye, and others. Not every startup company has to be sold overseas in its entirety."
Another aspect of advanced technology is foodtech and agritech. "The Emirates are concerned about food security, as they import most of their food. They realize that because of desertification and other factors, in the future they will be short of tillable land, and so they have bought vast areas of agricultural land abroad, in Africa, Eastern Europe, Brazil, and other places, and they need Israeli agricultural technologies for working the land, irrigation, and growing in different conditions. So Israeli company Netafim and other companies, in drones/robots, water technologies, and so forth, have signed substantial agreements with companies and investors in the Emirates for developing these lands."
On the other hand, another aspect of ties with the Emirates that Baruch mentions is the transfer of Israeli companies there, because of the proximity to global trade and shipping centers, easier taxation policies, and the ability to recruit various kinds of manpower.
Baruch also severely criticizes the Israeli government, which he says wasn't functioning in real time, and was plagued by internal disputes, and because of that failed, among other things, to promote exports.
"The hysteria caused the cancellation of exhibitions and conventions, and everything that generates exports, immediately followed by severe predictions of a decline in world trade. The government wasn't really functional, and was entirely preoccupied with lockdowns and restrictions. Other countries started to change policy and encourage local industry to supply internal needs, which increased international competition. Here, the government did not see exports as an area that had to be dealt with at all."
Published by Globes, Israel business news - en.globes.co.il - on January 26, 2021
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